Financial Leverage and Market Value of Manufacturing Firms in Nigeria
Paulinus Akpan Ubong, Gabson Daasi PhD and Mrs Dorathy Akpan PhD
Abstract
In today’s dynamic global economy, financial leverage plays a critical role in shaping firms’ strategies and determining their value, especially within Nigeria’s manufacturing sector, which is pivotal to the country's industrial and economic development. Despite the introduction of financial regulations and managerial training, many Nigerian manufacturing firms continue to struggle with optimal leverage levels, raising concerns about declining market valuations. This study examined the effect of financial leverage on the market value of manufacturing firms listed on the Nigerian Exchange Group (NGX). The main objective of this study was to investigate how various financial leverage indicators influence the market value of these firms. The study adopted an ex-post facto research design, utilizing historical financial data from 2015 to 2024. The population comprised 34 manufacturing firms listed on the NGX, from which a purposive sample of 10 firms was selected based on data availability, consistent listing, and sector representation. Secondary data were sourced from annual financial reports and the NGX database. The analysis was conducted using descriptive statistics and panel data regression models, with Tobin’s Q serving as the proxy for market value. The statistical analysis was carried out using E-Views software. The findings revealed that total debt to equity ratio had a significant negative effect on Tobin’s Q, while total debt ratio and equity multiplier had significant positive effects. Interest coverage ratio and long-term debt ratio had insignificant effects. The study concluded that financial leverage significantly affects market value and recommended that firms strategically manage their capital structure by optimizing debt and equity levels to enhance value without incurring excessive financial risk.
Keywords
Financial leverage
Interest cover ratio
Total debt-equity ratio
Market value
Tobin's Q
References
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Effiong, T., & Ukpong, E. (2024). Firm characteristics and financial leverage of listed
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cement sector. Journal of Business Finance, 13(3), 75–92.
Okonkwo, O., & Ahmed, S. (2021). Industry comparison of capital structure decisions in
Nigeria: Evidence from selected sectors. Nigerian Journal of Business and
Management, 10(2), 54–67.
Omodero, C. O., & Ogbonnaya, A. R. (2020). Financial leverage and market value of quoted
firms in Nigeria. IIARD International Journal of Economics and Business
Management, 6(2), 23–32.
Onyeiwu, C. (2020). Debt financing and firm performance: Evidence from Nigeria’s
manufacturing sector. Journal of African Business Studies, 9(4), 60–72.
Pandey, M., & Sahu, T. N. (2019).Capital structure and firm performance: Empirical analysis
of Indian manufacturing firms. Indian Journal of Economics and Development, 15(3),
187–194.
Rafiuddin, A., & Rafiqul, B. (2020). Capital structure and firm performance in Australian
service sector firms: a panel data analysis. Journal of Risk and Financial Management,
13(214), 1-16.
Raphael, K., & Solomon, T. (2024). Threshold effects of short-term debt on market valuation
in Nigerian electronics firms. Journal of Emerging Markets Finance, 12(1), 58–75.
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Fundamentals of corporate finance
(12th ed.). McGraw-Hill Education.
Rust, R., Lemon, K. and Zeithaml, V. (2004). Return on marketing: using customer equity to
focus marketing strategy. Journal of Marketing, 68(1), 109-127.
Salawu, A., Ogundele, O., & Olawale, Y. (2017). Financial structure and performance:
Empirical analysis of manufacturing firms. African Journal of Business Management,
10(3), 97–113.
Senan, N., Ahmad, A., Anagreh, S., Tabash, M. and Al-Homaidi, E. (2021). An empirical
analysis of financial leverage and financial performance: Empirical evidence from
Indian listed firms. Investment Management and Financial Innovations, 18(2), 322-
Singh, T., & Bansal, A. (2016).Effect of capital structure on firm profitability: A study of
selected Indian firms. International Journal of Commerce and Management Research,
2(4), 53–57.
Tobin, J. (1969). A general equilibrium approach to monetary theory. Journal of Money, Credit
and Banking, 1(1), 15-29.
Udo, N., & Victor, O. (2020). Debt financing and market value in Nigerian consumer-goods
sector: A GMM approach. African Journal of Finance, 8(3), 110–128.
Umar, A., & AbdulQudus, I. (2020). Effect of financial leverage on firm value: evidence from
selected firms quoted on the Nigerian Stock Exchange. European Journal
processing. Journal of East African Finance, 7(3), 89–106.
Abiola, A. S., & Balogun, O. M. (2022). Long-term debt financing and market valuation in
Nigerian pharmaceuticals. International Journal of Finance and Economics, 17(1),
101–118.
Adebayo, T. O., & Okafor, I. M. (2023). Debt–equity structure and market valuation of
Nigerian manufacturers. Journal of African Financial Research, 14(2), 112–129.
Adejumo, O., & Tayo, S. (2021). Financial financial leverage and firm profitability: Evidence
from emerging markets. International Journal of Finance and Economics, 12(3), 45–
Akpan, J., & Ekanem, P. (2022). Short-term debt ratio and market valuation of Nigerian
manufacturing firms: A panel data analysis. Journal of Emerging Finance, 10(2), 45–
Akpochi, J. A., Ibhiedu, C. E., & Oaikhenan, H. E. (2020). Capital structure and profitability
of listed industrial goods firms in Nigeria. Nigerian Journal of Management Sciences,
9(1), 134–146.
Bassey, G. E., & Effiong, C. E. (2018). Financial leverage and firm performance: Evidence
from the Nigerian consumer goods sector. International Journal of Finance and
Accounting, 7(1), 1–10.
Bello, T., & Essien, O. (2023). Total debt–equity ratio and firm value: Evidence from Nigerian
food-processing firms. African Business Review, 15(1), 78–92.
Benvolio, J., & Ironkwe, U. (2022). Board composition and firm performance of quoted
commercial banks in Nigeria. GPH - International Journal of Business Management
(IJBM), 5(01), 19-40.
Brealey, R., Myers, S., & Allen, F. (2020). Principles of corporate finance. McGraw-Hill
Education.
Breusch, T. S., & Pagan, A. R. (1980). The Lagrange multiplier test and its applications to
model specification in econometrics. The Review of Economic Studies, 47(1), 239-253.
Brigham, E. F., & Ehrhardt, M. C. (2016). Financial management: Theory & practice (15th
ed.). Cengage Learning.
Brigham, E., & Ehrhardt, M. (2020). Financial management: theory and practice. Cengage
Learning.
Brown, A., & Williams, M. (2021). Financial leverage and firm performance: An empirical
analysis. Journal of Corporate Finance, 67(4), 1123-1142.
Caballero, R., & Krishnamurthy, A. (2006). Bubbles and capital flow volatility: Causes and
risk management. Journal of Monetary Economics, 53(1), 35-53.
Central Bank of Nigeria. (2022). Annual statistical bulletin: Interest rate statistics.
https://www.cbn.gov.ng
Chen, H., Zhang, Y., & Li, W. (2018). Financial leverage effects on firm performance:
Evidence from China. Journal of Corporate Finance, 26(3), 145–162.
Chen, L. (2022). Debt thresholds and market performance: Evidence from manufacturing.
International Journal of Finance, 14(3), 78–92.
Chok, N. S. (2010). Pearson's versus Spearman's and Kendall's correlation coefficients for
continuous data (Doctoral dissertation, University of Pittsburgh).
Dlamini, L. P., & Khumalo, S. J. (2022). Short-term debt financing and market value in South
African manufacturing. Southern African Journal of Finance, 9(4), 115–132.
Echekoba, F. N., & Ananwude, A. C. (2016).The relationship between capital structure and
firm value of companies listed on the Nigerian Stock Exchange. Research Journal of
Finance and Accounting, 7(8), 91–100.
Effiong, T., & Ukpong, E. (2024). Firm characteristics and financial leverage of listed
industrial goods firms in Nigeria. Iconic Research and Engineering Journals, 7(7), 295-
Ekanem, P., & Idara, C. (2020). Composite leverage metrics and firm valuation in the Nigerian
cement industry. Journal of African Finance, 6(2), 55–70.
Eze, U. (2023). Long-term debt risk in developing economies. Nigerian Journal of Business
Studies, 5(2), 112–130.
Gujurati, D. N. (2004). Basic Econometrics. Fourth Editions New York McGraw Hill.
Hassan, O. S., & Adegbie, F. F. (2021). Financial leverage and cash flow of listed
manufacturing firms in Nigeria.
Myers, S. C. (2022). Capital structure puzzle revisited: Financial leverage in developing
economies. Global Finance Review, 20(1), 15–29.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms
have information that investors do not have. Journal of Financial Economics, 13(2),
187–221.
Nwankwo, C. C., & Emeh, P. K. (2022). Debt-service capacity and firm value in Nigerian oil
and gas. Energy Economics and Finance, 5(2), 45–62.
Nwosu, J. (2022). Long-term debt and firm growth. Journal of Emerging Markets Finance,
9(3), 145–160.
Nwude, E. C., & Anyalechi, K. C. (2020).Capital structure and firm value: Empirical evidence
from Nigeria. International Journal of Finance and Accounting, 9(3), 85–94.
Odum, A. N., Eze, M. I., & Ukaegbu, B. N. (2021). Effect of financial leverage on financial
performance of quoted industrial goods firms in Nigeria. Nigerian Journal of
Management Sciences, 10(1), 78–90.
Ofulue, I., Ezeagba, C., Amahalu, N. and Obi, J. (2022). Financial leverage and Financial
Performance of Quoted Industrial Goods Firms in Nigeria. International Journal of
Management Studies and Social Science Research, 8(7), 172-181.
Ogundipe, K. (2024). Optimal leverage in manufacturing firms. Nigerian Journal of
Economics, 2(1), 30–47.
Ojo, T. O., & Adeyemi, K. (2022). Joint leverage dynamics and firm valuation in Nigerian
cement sector. Journal of Business Finance, 13(3), 75–92.
Okonkwo, O., & Ahmed, S. (2021). Industry comparison of capital structure decisions in
Nigeria: Evidence from selected sectors. Nigerian Journal of Business and
Management, 10(2), 54–67.
Omodero, C. O., & Ogbonnaya, A. R. (2020). Financial leverage and market value of quoted
firms in Nigeria. IIARD International Journal of Economics and Business
Management, 6(2), 23–32.
Onyeiwu, C. (2020). Debt financing and firm performance: Evidence from Nigeria’s
manufacturing sector. Journal of African Business Studies, 9(4), 60–72.
Pandey, M., & Sahu, T. N. (2019).Capital structure and firm performance: Empirical analysis
of Indian manufacturing firms. Indian Journal of Economics and Development, 15(3),
187–194.
Rafiuddin, A., & Rafiqul, B. (2020). Capital structure and firm performance in Australian
service sector firms: a panel data analysis. Journal of Risk and Financial Management,
13(214), 1-16.
Raphael, K., & Solomon, T. (2024). Threshold effects of short-term debt on market valuation
in Nigerian electronics firms. Journal of Emerging Markets Finance, 12(1), 58–75.
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Fundamentals of corporate finance
(12th ed.). McGraw-Hill Education.
Rust, R., Lemon, K. and Zeithaml, V. (2004). Return on marketing: using customer equity to
focus marketing strategy. Journal of Marketing, 68(1), 109-127.
Salawu, A., Ogundele, O., & Olawale, Y. (2017). Financial structure and performance:
Empirical analysis of manufacturing firms. African Journal of Business Management,
10(3), 97–113.
Senan, N., Ahmad, A., Anagreh, S., Tabash, M. and Al-Homaidi, E. (2021). An empirical
analysis of financial leverage and financial performance: Empirical evidence from
Indian listed firms. Investment Management and Financial Innovations, 18(2), 322-
Singh, T., & Bansal, A. (2016).Effect of capital structure on firm profitability: A study of
selected Indian firms. International Journal of Commerce and Management Research,
2(4), 53–57.
Tobin, J. (1969). A general equilibrium approach to monetary theory. Journal of Money, Credit
and Banking, 1(1), 15-29.
Udo, N., & Victor, O. (2020). Debt financing and market value in Nigerian consumer-goods
sector: A GMM approach. African Journal of Finance, 8(3), 110–128.
Umar, A., & AbdulQudus, I. (2020). Effect of financial leverage on firm value: evidence from
selected firms quoted on the Nigerian Stock Exchange. European Journal
